Gujarat plus much more

CM can do magic by fixing project implementation, but PM must fix policy first

By Rajiv Kumar

With the Modi government barely 60 days old, it is surely too early to make any assessments. But his track record and the expectations he has aroused have generated impatience and restiveness even amongst Modi’s supporters. News that trickles out tells us of an indefatigable prime minister driving from the front and changing the tenor and temper of the entire bureaucracy. This apparently unprecedented behind-the-scene activity will most likely be reflected in Modi’s maiden Independence Day address.

My intuition is that, being beholden to symbolism, he will lay out his government’s development blueprint and invite people’s participation from the ramparts of the Red Fort.

Those who have observed Gujarat point to Modi’s stellar record in project implementation and in raising efficiency levels across government departments. He successfully pursued this model of intensive homework with his highly trusted and crack team in the CMO along with other senior bureaucrats, and then delivering on the targets agreed. Homework was done during three day chintan shivirs, which culminated in clearly defined annual targets along with a plan of action.

Apparently this is being replicated in Delhi, with senior bureaucrats making detailed initial presentations, followed by iterations that reflect feedback from Modi himself, and then finalising modalities for project execution. This is top notch project management. But will it suffice to achieve rapid, sustained and inclusive growth needed to fulfil rising aspirations? Will it bring succour to the ‘neo middle class’ from the double whammy of high inflation and growing unemployment?

My concern is that the Indian economy, unlike Gujarat, is not merely a vast project site. The CM as a super efficient CEO can no doubt churn out higher growth rates by improving project implementation and raising the efficiency of public services delivery. These are our weakest suites and Modi is therefore quite right in rectifying them. This also plays to his strength.

However, unlike in the states, the central government has the principal responsibility of putting together an overall, multidimensional and yet coherent policy framework. Policy formulation has to precede project design or its implementation. Some examples will hopefully help.

Is inflation in India a purely monetary phenomenon to be tackled by fiscal and monetary contraction or does it require focused management of supply side issues? Can we afford higher fiscal deficit if this results in improving productivity? Can agriculture be modernised without a robust land market? Are flexible labour policies a necessary condition for promoting manufacturing? Should India maintain a relatively weak currency for promoting exports?

Will food security be achieved by subsidising consumption or raising agriculture yields? Do we assume carbon constraints on our growth or rely on retrofitting? Should 100% FDI in defence be permitted to maximise employment generation and reduce strategic import dependence or should we pursue the elusive goal of building national champions? Does it better serve the national interest to forge closer ties with Japan or should that be secondary to try and access China’s vast financial reserves for infrastructure investments? Should we go ahead with China in establishing the Brics development bank even if it alienates the US and Japan?

These are critical policy issues that have to be answered. The short but critical point is that the principal mandate of the central government is to establish a coherent and rational policy framework that will better serve strategic national interest. And an emphasis on continuity mortally constrains innovative policy choices, rules out breakthroughs.

It is worth reiterating that the Gujarat model did not have to factor in this macro policy function in its operations. Even for issues like charging farmers with a minimum power tariff, a policy decision taken earlier by the central government was successfully executed.

Making the right policy choices in an increasingly complex and globally integrated economy requires technical inputs and expertise. Fortunately, such expertise is available. The PM needs to tap into this pool, which includes successful NRIs and the use of technology to source new ideas and make the right policy choices.

It would be efficient to locate the expertise either within or in close proximity to the government. This will create positive synergies between experts and civil servants. In our country, the bureaucracy spends most of its time putting out fires and implementing projects. It is not allowed to develop expertise and its global exposure is sporadic. Therefore, an exclusive reliance on career bureaucrats and diplomats and the resultant bureaucratic capture of policymaking can have seriously negative outcomes.

For example, the bureaucratic advice (in the absence of a chief economic advisor) to control inflation by contracting aggregate demand requires a sharp reduction in fiscal deficit and interest hike, to pre-empt inflationary expectations. This policy stance will weaken investment sentiments and lower GDP growth rates, thereby effectively belying the promise of achhe din for the people.

India’s current splendid isolation in WTO is yet another example where expert advice could have made a difference. Similarly, lack of joint expert and diplomatic effort could result in the failure of the forthcoming Indo-US dialogue. By effectively marshalling available expertise and creating necessary synergies with the bureaucracy, the PM will signal his preparedness to move beyond Gujarat.